About McKesson

McKesson moves medicine. As a top pharmaceuticals distributor in North America, McKesson delivers prescription and generic drugs, as well as health and beauty care products, to more than 40,000 retail and institutional pharmacies throughout the US. The company is also a major medical supplies wholesaler, providing medical and surgical equipment to alternate – more...health care sites, such as doctors' offices, surgery centers, and long-term care facilities. In addition to distribution services, McKesson offers software and technical services that help pharmacies, health care providers, and insurers manage supply chain, clinical, administrative, and financial operations.

Operations

The McKesson Distribution Solutions division, which brings in about 95% of the company's annual revenues, primarily provides prescription and over-the-counter (OTC) pharmaceuticals to retailers and health care institutions in the US; it also is a wholesaler of drugs in Canada and owns about half of Nadro, a Mexican pharma distributor. The distribution division also supplies medical equipment through its Medical-Surgical unit, including first aid kits and workplace safety supplies distributed by subsidiary ZEE Medical. Major US pharmacy operators CVS Caremark, Rite Aid, and Wal-Mart are among the company's key clients, each accounting for about 10% of accounts receivable.

McKesson Distribution Solutions also holds operations outside the traditional retail and institutional distribution realm. For instance its specialty pharmaceutical distribution unit coordinates the delivery of complex medicines directly to physicians, including cancer drugs through subsidiary US Oncology (which also provides clinical management services). Additionally, the company supplies automated pharmacy dispensing systems through its minority-owned Parata Systems, as well as institutional medication preparation services through its SKY Packaging unit and plasma products delivery through the Plasma and BioLogics unit. Other Distribution Solutions services include consulting and inventory management services for pharmacies (such as EnterpriseRx data management software and the Health Mart franchise program) and for drugmakers (including discount and patient management programs).

While the Distribution Solutions division is focused solely on the North American marketplace (primarily through the US distribution unit, as well as the McKesson Canada business and its stake in Mexico's Nadro), the Technology Solutions businesses provide a more global scope. McKesson's IT-focused division provides services in countries including the UK, the Netherlands, France, and Israel. Overall, international operations account for about 10% of McKesson's annual revenues.

Financial Analysis

As one of the top wholesale drug distributors in North America, McKesson has maintained healthy earnings and profit growth through the years. For instance in fiscal 2012, the company's revenues increased nearly 10% to some $123 billion, and its net income grew by about 17% to $1.4 billion. McKesson attributes its success to organic and acquisitive growth measures that have helped it nurture all of its business segments. The firm has especially benefited from its acquisition of US Oncology (2010), as well as increases in generic drug distribution and high-margin technology services.

Strategy

Strategic acquisitions have long been important to the growth of the company's core distribution operations, as the company regularly purchases small to midsized regional distributors and distribution support companies to extend its network. McKesson also widens its product offerings by forming new partnerships with suppliers.

McKesson is also focused on expanding its smaller, but increasingly important, Technology Solutions division. The firm is especially taking advantage of the fact that many health care providers and insurance firms are looking to prepare for the implementation of health reform measures, as well as to qualify for federal incentive programs that encourage more efficient data systems and methods of care.

Mergers and Acquisitions

In October 2012 McKesson struck a $2.1 billion deal ($1.6 billion cash plus debt assumptions) to acquire PSS World Medical to expand its medical supply distribution business. The purchase will expand McKesson's US warehouse, delivery, and marketing organizations and strengthen its supply business in key areas including diagnostic tests and private-label products.

Earlier in 2012 McKesson expanded its Canadian pharmaceutical distribution and services business by acquiring the independent banner (Drug Trading Company) and franchise (Medicine Shoppe Canada) businesses of Katz Group Canada for C$920 million ($926 million).

To expand its Technology Solutions unit, in 2011 the company paid about $90 million for Portico Systems, a company that manages IT systems (including billing and claims) for payer and provider networks. In early 2012 the company acquired peerVue to add to its medical imaging workflow technology platform. – less